Competition Isn't War

from the scorched-earth dept

Ben Worthen theorizes that Microsoft is acquiring Yahoo not to increase its own profits but to damage Google. Worthen is suggesting that by slashing prices for its ads, Microhoo could "chip into Google’s profit center," slowing down Google's expansion. I haven't talked to Steve Ballmer about this, but I really doubt this what he has in mind. In the first place, it's not clear that aggressive price-cutting by Yahoo! would even hurt Google that much. Aggressive price-cutting only hurts your competition significantly if you've got enough inventory to satisfy the market at the new, lower price. But Yahoo! has significantly fewer eyeballs than Google, so even if Yahoo! gave away its ads for free, there would still be a lot of unmet demand that Google could cater to. Secondly, trying to "chip away at" Google's ad revenue seems like exactly the wrong way to attack Google. Google has plenty of cash on hand, and its still-astronomical share price makes it easy to raise more. Google employees have told me that the limiting factor for the company at the moment isn't money but the ability to recruit new employees.

More fundamentally, the war metaphor is misleading in this kind of discussion. In a competitive market like this one, companies make profits by creating value for their customers. Especially in a growing market like this one, there isn't a fixed pie to be divided. So there's no reason to think that lowering Google's profits would improve Microsoft's fortunes. Microsoft should acquire Yahoo! if the combined company will be more profitable than they would be separately. Obviously, competition with Google is a big factor to consider, but it gets things backwards to view hurting Google, in and of itself, as a win for Microsoft.

Reader Comments

MicroHoo

I'd speculate that the reason Microsoft wants Yahoo is all the EyeBalls Yahoo already has.

The speculation I follow suggests that Microsoft would try and inflict its Silverlight thing on the Internet via the MicroHoo thing. Thus forcing the Internet to uses its proprietary formats resulting in the lockout of other OSs and browsers such as Unix (all flavors) and Firefox, Opera, etc.

Re:

Microsoft has a long history of trying to "win" by running the competition into the ground. Back in the days of MS-DOS, MS used over-exaggerated pre-sale hype to trick people into waiting for the next version, rather than buy DR-DOS, which MS internal memos admitted was a superior product. Then they intentionally inserted code into Windows 3.11 to ensure that it wouldn't load if it detected DR-DOS. They even instructed programmers to have it display some cryptic error message, and then rigged their help line to imply that not using MS-DOS was the source of all their problems.